IMF Executive Board Concludes Fifth Review under the Stand-By Arrangement for Jamaica

April 22, 2019

Reduction in the primary surplus target by ½ percent of GDP to 6½ percent in the FY19/20 Budget will facilitate higher spending in social assistance, citizen security and infrastructure.
Reducing the highly distortive financial turnover taxes is expected to lower the cost of doing business and increase economic activity. Tackling governance issues swiftly and forcefully is necessary to enhance transparency and accountability, bolster trust in public institutions, and protect public funds.

The Executive Board of the International Monetary Fund (IMF) today completed the fifth review of Jamaica’s performance under the program supported by the Stand-By Arrangement (SBA), on a lapse of time basis.[1] The 36-month SBA with a total access of SDR 1,195.3 million (about US$ 1.66 billion), equivalent of 312 percent of Jamaica’s quota in the IMF, was approved by the IMF’s Executive Board on November 11, 2016 (see Press Release No.16/503). The Jamaican authorities continue to view the SBA as precautionary, and to use it as an insurance policy against unforeseen external economic shocks that could lead to a balance of payments need.

Strong implementation of the reform program continues. After commendable performance under two successive Fund arrangements since May 2013, Jamaica’s public debt is projected to fall below 100 percent of GDP for the first time since FY2000/01—to 98.7 percent of GDP in FY18/19. Unemployment is near all-time lows, business confidence is high, and the economy is estimated to have expanded by 1.8 percent in 2018, buoyed by mining, construction and agriculture. International reserves are estimated to be comfortable under a more flexible exchange rate. All quantitative performance criteria at end-December 2018 were met, and the structural benchmark to table in Parliament amendments to the Bank of Jamaica (BOJ) Act was completed in October 2018. In December 2018, however, inflation was 2.4 percent, triggering staff consultation under the Monetary Policy Consultation Clause; it remained at the same level in February 2019.

Achieving higher growth calls for action from both the public and private sector. For its part, the Government of Jamaica’s FY19/20 budget is reducing the primary surplus by ½ percent of GDP to 6½ percent without compromising the medium-term public debt anchor. The fiscal loosening supports growth and social spending by providing resources for security, infrastructure, school meals and transportation. Further, the cuts to distortionary financial taxes will help support economic activity and job creation. The private sector, for its part, should capitalize on these fiscal measures to increase investment, and create new opportunities for advancing financial inclusion.

Public sector governance shortcomings should be immediately addressed. This could be achieved, in part, by: (i) empowering the Integrity Commission, (ii) passing regulations to solidify a transparent and competency-based process for board appointments to public bodies’ boards, (iii) migrating funds from the government’s commercial bank accounts to the Treasury Single Account (TSA) and closing those accounts, and (iv) reducing the number of public bodies.

Further monetary easing is needed to restore inflation to the midpoint of the 4–6 percent target range. The BOJ’s recent reduction in the reserve requirement on Jamaican dollar deposits will help make policy accommodative but further rate cuts are likely to be needed. In deciding further policy loosening, the BOJ should carefully assess all incoming data. The BOJ should also continue to reduce its FX market footprint, including by limiting its FX sales to disorderly market conditions; the need for further reductions in reserve requirements should be assessed.

Strengthening coordination between the BOJ and FSC and increasing capacity in both institutions is paramount to maintain financial sector stability. Risk-based supervision of financial conglomerates requires the methodical collection, sharing, and monitoring of data and lending standards. Joint work among the regulators will be required to draft legislation for the special resolution regime and to address AML/CFT deficiencies.

An ongoing commitment to strengthen domestic institutions is needed as Jamaica prepares to exit from the Fund financial arrangement later this year. Laying the groundwork for the Fiscal Council, amendments to the BOJ Act for its operational autonomy, and a disaster resilience policy framework are steps in this direction. Overhauling the public sector compensation structure by streamlining allowances and making it performance-based, prioritizing and reducing government functions and size, and upgrading public bodies’ governance are critical for fiscal sustainability.

[1] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.

	Table 1. Jamaica: Selected Economic Indicators 1/
Population (2013): 2.8 million						Per capita GDP (2014): US$4955
Quota (current; millions SDRs/% of total): 382.9/0.08%						Literacy rate (2015)/Poverty rate (2016): 87%/17.1%
Main products: Alumina, tourism, chemicals, mineral fuels, bauxite, coffee, sugar						Unemployment rate (Oct. 2018): 8.7%

			Est.	Prog.	Projections
		2016/17	2017/18	2018/19	2018/19	2019/20	2020/21	2021/22	2022/23	2023/24
	(Annual percent change, unless otherwise indicated)
GDP and prices
Real GDP		1.4	0.9	1.4	1.5	1.5	1.9	2.1	2.3	2.4
Nominal GDP		5.9	7.9	5.5	5.4	6.2	7.0	7.2	7.5	7.6
Consumer price index (end of period)		4.1	4.0	4.7	4.0	4.3	5.0	5.0	5.0	5.0
Consumer price index (average)		2.4	4.6	3.7	3.5	4.2	4.7	5.0	5.0	5.0
Exchange rate (end of period, J$/US$)		128.7	126.0	…	…	…	…	…	…	…
Exchange rate (average, J$/US$)		126.5	128.0	…	…	…	…	…	…	…
Nominal depreciation (+), end-of-period		5.4	-2.1	…	…	…	…	…	…	…
End-of-period REER (appreciation +) (new methodology) 2/		-2.6	3.2	…	…	…	…	…	…	…
Treasury bill rate (end-of-period, percent)		6.3	5.1	…	…	…	…	…	…	…
Treasury bill rate (average, percent)		6.1	5.1	…	…	…	…	…	…	…
Unemployment rate (percent) 3/		12.7	9.7	…	…	…	…	…	…	…
	(In percent of GDP)
Government operations
Budgetary revenue		27.9	29.0	29.8	30.8	29.4	28.7	28.3	28.1	28.0
Of which: Tax revenue 4/		25.7	25.7	25.9	26.6	26.3	25.8	25.5	25.5	25.5
Budgetary expenditure		28.1	28.6	29.6	30.6	29.2	28.0	27.3	26.7	26.0
Primary expenditure		20.3	21.6	22.8	23.8	23.0	22.2	21.8	21.6	21.5
Of which: Wages and salaries		9.3	9.2	9.1	9.0	9.0	9.0	8.8	8.8	8.8
Interest payments		7.8	7.0	6.8	6.8	6.3	5.9	5.5	5.1	4.5
Budget balance		-0.2	0.5	0.2	0.2	0.2	0.6	1.0	1.4	2.0
Of which: Central government primary balance		7.6	7.5	7.0	7.0	6.5	6.5	6.5	6.5	6.5
Public entities balance 8/		2.0	0.6	0.0	-0.4	0.0	0.0	0.0	0.0	0.0
Public sector balance		1.8	1.0	0.2	-0.2	0.2	0.6	1.0	1.4	2.0
Public debt (FRL definition) 4/ 6/		113.6	101.1	99.6	98.7	93.3	88.5	81.9	76.0	69.5
Public debt (EFF definition) 5/ 7/		121.7	109.1	105.8	105.1	96.1	90.8	83.4	76.7	69.5
External sector
Current account balance		-1.2	-3.0	-5.0	-2.5	-2.9	-2.7	-2.8	-2.9	-3.0
Of which: Exports of goods, f.o.b.		8.8	9.5	10.8	10.8	10.1	10.2	10.2	10.2	10.1
Exports of services		15.7	14.2	14.5	14.1	14.9	15.0	14.7	14.4	14.2
Of which: Imports of goods, f.o.b.		30.1	33.5	36.9	33.7	33.6	33.1	33.0	32.6	32.2
Imports of services		21.2	20.6	21.1	20.8	22.6	23.3	22.9	22.6	22.3
Net international reserves (US$ millions)		2,769	3,075	2,965	2,834	3,155	3,485	3,556	3,717	3,689
of which: non-borrowed		1,944	2,398	2,454	2,353	2,825	3,169	3,409	3,591	3,672
	(Changes in percent of beginning of period broad money)
Money and credit
Net foreign assets		0.4	12.8	2.8	-0.8	7.0	7.1	2.8	4.5	1.6
Net domestic assets		20.3	6.1	2.7	6.2	-0.8	-0.1	4.4	3.0	5.9
Of which: Credit to the private sector		26.5	14.8	7.8	7.1	8.1	8.6	9.6	11.3	11.8
Of which: Credit to the central government		-0.4	5.6	2.8	7.0	3.1	-1.5	0.1	-0.1	0.0
Broad money		20.7	18.9	5.5	5.4	6.2	7.0	7.2	7.5	7.6
Memorandum item:
Nominal GDP (J$ billions)		1,789	1,930	2,039	2,034	2,160	2,311	2,478	2,663	2,864
Sources: Jamaican authorities; and Fund staff estimates and projections.
1/ Fiscal years run from April 1 to March 31. Authorities' budgets presented according to IMF definitions.
2/ The new methodology uses trade weights for Jamaica that also incorporate trade in services especially tourism.
3/ As of January 31.
4/ Consolidated central government and public bodies' debt, consistent with the Fiscal Responsibility Law. The most significant deviation from the EFF definition is the exclusion of debt to the IMF held by the BoJ.
5/ Central government direct debt, guaranteed debt, and debt holdings by PCDF, consistent with the definition used under the EFF approved in 2013
6/ Consistent with the Fiscal Responsibility Law (FRL), implementation of the FRL-consistent debt definition began in FY16/17. A backward series is not available since consistent data on public bodies' debt holdings is not available prior to FY16/17.
7/ The decrease in debt in FY15/16 partly reflects the PetroCaribe buyback operation that generated an immediate 10 percentage point reduction in debt. The increase in debt in FY16/17 partly reflects prefinancing for FY17/18 maturities.
8/ Projections for 18/19 reflect the special distribution from PCDF to Central Government, ahead of its reintegration by end 18/19.

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